Exit wounds | Warning Signs 4

The human side of mergers, acquisitions and investment events is far more important than the pitch deck ever admits. It’s messy, emotional — and entirely necessary to handle correctly if you want the wounds created to heal with minimal scarring.

Join us for Exit Wounds, the latest in the Warning Signs webinar series, where we’ll unpack why deals go sour, and how you can spot and interrupt the red flags early.

Alongside Paul Billingham of Knight Corporate Finance, we share blunt, practical insights from the sharp end of corporate change.

Transcript

 Phil: Morning everybody. Well listen, good to see you. We’re going to crack on. Welcome to the fourth of our Warning Signs webinars, with the title Exit Wounds. And what we’re going to be talking about today is investment events and the impact of investment events, through the lens of the kind of stuff that doesn’t get talked about enough in both the planning and the execution of those sorts of big milestones in a business’ journey. I am joined today by Paul Billingham from Knight Corporate Finance. I asked Knight to join us on today’s webinar because I’ve been extremely impressed with the sort of values and ethos of their firm, and the way that they get to know businesses and properly invest in their relationship with businesses, in the run up to deals. Paul himself also has an interesting story because he actually went through his own journey of an investment event with Knight as well, which he’ll talk more about. So it’s good to get alternate perspectives in these things and Paul and the Knight team are a class act, so it’s great to have them with us this morning.

Just as a recap about yours truly then. Those of you who know me will know I’m a coach and consultant, and if you don’t know me, you will now know that I’m a coach and consultant. I work with leaders and teams to help them solve seven- and eight-figure business problems through the lens of one thing, which is in the end, all business problems in my view, are actually human problems. They’re to do with how we relate, how we work together, how we bring the best out of each other. So my work is focused on resolving issues of leadership, how boards perform, CEOs sometimes as well, strategic alignment across teams, the way that organisations are structured in accordance with the strategy that they’re trying to pursue. And a lot of work both in this practice and in another practice on change management as well. So that’s where I come from, a very kind of humanistic perspective. The reason that we put together this Warning Signs series, which is running throughout 2025, is really to try and offer a space in which we can get into what I’ll call open empathic inquiry. So ultimately this isn’t about myself or in this instance Paul coming down from the mountains with the tablets of stone going: this is exactly how it is. Our job here actually is to help those of you who’ve given your time to join us, to try and think. And hopefully think in some new and interesting and creative ways about the topic that we’re talking about. In terms of the topics that we choose for Warning Signs, what we’re really trying to do is find topics that are reflective of human problems in business and the kind of human problems that, if they get left unchecked, ’cause human problems tend to not get better with age, start to manifest themselves in the business. So that’s ultimately what we are here to do. And also to try and pick topics or an angle into topics that are a little bit off the beaten track. So that’s it. We’re going to get straight into it. I’m going to just introduce Paul. Paul’s going to spend the next 10 or 15 minutes offering his perspective, and the perspective of Knight, on what good change looks like through the lens of investment, and how some of those Exit Wounds can be avoided. So, Paul, over to you.

Paul: Good morning everybody. I’m Paul Billingham, co-founder of Knight Corporate Finance. We’re a boutique advisor in the technology sector. The reason we’re focused on technology, more than any other area is that both Adam and I that co-founded Knight are operational people from the technology sector. So both of us spent time at mobile service providers. I was at Martin Dawes, for those of you old enough to remember that name. After that I moved into Opal Telecom, now what you know as TalkTalk. So I was part of that journey that built up Opal, sold it to Carphone Warehouse, and then reinvented itself as TalkTalk. So a long period doing M&A and a number of exits along that journey. And then co-founded Knight nearly 17 years ago now, December 2008. Our journey has moved on from there as well. So, as I say we are technology specialists. We really advise business owners on a number of things, but we’re focused typically on founder-led, owner-managed businesses. We would call this sort of the mid-market and below. In 17 years, we’ve done over 200 transactions, realised over a billion of value for clients and we’ve got 10 sector specialists and we are UK-wide as well. I’m based in Manchester, Adam’s based in London, so we’ve got offices in those locations, but we are UK-wide. We deal with customers all over the UK and with buyers of our clients, people from all over the world. A bit of background of what Knight do. So we really focus on four areas with clients. We can help on strategy, funding, acquisitions, and exits. Most of our revenue, I’d say, and most of our deals are exits, so founders and management teams. But we’ve often done one of the other three things with them before we take them to exit. And as Phil said earlier, we invest a lot of time with clients way ahead of a transaction. We like to get to know clients, what they want to achieve, what their ambitions are, and if we can help them along the way and maybe some of the strategy stuff or even getting some funding in to help accelerate growth, that helps us when we’re actually exiting them ’cause it helps us understand what the client wants, and helps us get them the best possible exit opportunity for them or best investment. As Phil also said, we’ve actually gone through an exit ourselves. Four years ago we were actually selling a different business that Adam and I had helped set up. We were going through a process and K3 Capital were one of a number of buyers looking at that business. And K3 actually said, well, as well as buying Knight R&D, which is an R&D tax credits business that we were selling, they also said, look, we wanna buy Knight Corporate Finance. We weren’t actually looking for a deal, looking to exit that point. But we liked the people in K3, we felt that they were still very entrepreneurial, like Adam and I felt we were. And so we are now part of K3 Capital Group which has a range of brands within it, including Randd, Quantuma, KBS, K3 Advantage, HMA Tax, Knight R&D and Origin IQ. And actually more recently KR8 as well. So it’s a multidisciplinary professional services group, across the UK, in fact, across the world for some of the brands within there. For us it meant that we can then offer a much wider range of services to our clients. But Knight itself has retained its autonomy and it’s retained its brand. We are still an autonomous division or business within the K3 Capital group. A lot of people wondering, well, since you’ve been acquired by K3, what’s happened, has it been successful? Has it all been positive? Definitely has. Because we weren’t looking for a transaction, we actually did a deal that involved a four year earnout. And we probably wouldn’t advise our own clients to do an earnout that long, but for us, it suited what we wanted. Our earnout actually ends this month, so the four years is up, but we’ll obviously continue operating as normal once the earnout ends. But yeah, what’s happened? So some key highlights. Revenue is up by 56%. Deal volumes up by 48%. Salary bill, which I think is important is up by over 100%. We’ve invested heavily in the team and K3 have supported that, and we’ve promoted a number of people in our team. K3 has allowed us to invest and support the staff. Allow them to grow within Knight so they’ve not had to leave to realise their personal ambitions, which I think is really positive. Brands remain the same. We’ve introduced multiple cross-sales opportunities to the wider parts of the group, and we’ve now started pitching alongside other divisions within the group, particularly K3 Advantage who provide financial due diligence. Just in terms of process, if it’s an investment process, whether that’s bank funding, challenger bank funding, private equity or even an exit process. Just to give you an idea of how long things take. Normally preparation, four to six weeks. Marketing, six to eight weeks, although we’re seeing that stretched a bit at the moment in the market. You then go into a heads of terms negotiation, which can take up to four weeks. That’s where both parties agree they’re the right parties for each other, and they then set out the key terms around the transaction. And then once the heads of terms is agreed, you then move to the really intensive stage, which is due diligence and legals. That can take anything between eight and 16 weeks. With our clients, we always make sure they’re well prepared. So before they even start the full process, we make sure that they’ve got the right information, they know what to expect from a transaction, and we have them fully prepared so that nothing’s going to trip them up during a process, ’cause that’s really important. Anything comes out of due diligence, it can really slow down a deal or actually in some cases it can end a deal. We want to make sure that our clients are fully aware of the things they’re going to be asked so there’s no surprises. What are the key things to think about pre-completion. Whether you are a buyer or a seller or an investor, due diligence is a heavy phase: financial, legal, commercial, customer due diligence, technical due diligence, et cetera. Standard processes that everyone goes through. We like to think that when we are talking to clients, or even on if we’re on the buy side, sometimes there are other things to think about aside from the due diligence process. So first of all, deal structure. What is it you want to achieve? Because lots of business owners probably don’t realise the range of opportunities they’ve got. It isn’t just a case of selling to a competitor where you take some money, maybe do a bit of an earnout, and that’s it. There are lots of different flavours and structures to a deal, even with a trade deal. There’s also obviously then private equity as well. If you felt that you would like to take a little bit of cash out and de-risk a bit, but you don’t want to sell completely, then private equity can offer those solutions for people. Then there are trade deals that almost do a private equity style structure, but from trade buyers. And the other thing as well is, does the deal work for both parties? You can have your own wishlist of what you want to achieve from your deal, but does that match for the other side? Again, our job is making sure that we can find the deal that works for our buyers with sellers that it works for them as well. Second thing to think about: cultural fit. We always say this is so important. You know, will the culture remain? That’s really important to lots of people. Does it matter? If you really just want to sell your business and exit and aren’t really too concerned about what happens post-deal, then it’s not such an important thing. But if you do wanna see your business continue with the same culture, with the same people, then that cultural fit is really important. And then, is everyone aligned as well? Do you have the same view of where the business should go post-completion as the buyer? ‘Cause if you don’t, they’re probably not the right party for you. And then the final thing to think about, often people don’t realise this is the hardest part of any transaction. Getting through the process is all done and dusted within six months. The integration stage is really what makes a deal work or not. So you need a clear plan. It needs to be understood by both sides. When we are talking to buyers with clients, we always ask them, what is your plan for the business post-deal? Is it to integrate quickly? Is it to keep them relatively autonomous, a bit like Knight has done. We had a very clear conversation with K3 that Knight would remain relatively autonomous within the group post-deal. Communication, particularly to staff, is really key. Make sure that when you announce a transaction, you plan this before the transaction’s completed, make sure there’s a clear plan and a clear communication plan for the staff so they know what to expect. They know that if the idea is to keep the business relatively autonomous, then, that’s said and made clear. But if it is to integrate, to say why that’s the case, and what that means for them so that they’re really clear and there’s no… ’cause staff often think if they’re part of the business that gets acquired, that it’s job losses and there’s not going to be a place for them. But most of the deals we do, staff are a key part of that transaction rationale. The businesses are growing, they want to acquire better businesses or businesses that fit well with them, and they want to retain those staff. The staff that were part of the transaction when Knight was acquired, most of them are still here, we’re really pleased about that. Just a final couple of sides. A bit of an overview of what corporate finance does. So I won’t dwell on this too long, we’ve got this iceberg because everyone thinks the corporate finance is there to identify offers, generate initial offers, and negotiate terms. But the nuance we can offer is that preparation: handle buyer concerns, manage and mitigate due diligence process, reduce the workload of the business, maximise excess cash, project management, the whole deal. You’re not really being a proper corporate finance advisor if you don’t manage it all the way through. You’re managing other advisors. You input into the SPA, reduce conflict. These processes are emotional, there will be conflicts. And we are there to be a bit of a buffer and a conduit and ultimately we’re there to complete the deal on time. So thank you for your time this morning, and I’ll hand back to Phil.

Phil: Thanks Paul. Lots in there I’m going to pick up on now as I talk through some thoughts really on what the kind of post-transaction world looks like, and the influence that that perspective should have on how we think about going through transactions and investments and often, quite frankly doesn’t. I want to just throw some stuff at you over the course of the next 15, 20 minutes that comes from a very related perspective to what Paul was talking about when he was talking about cultural fit and worries about job losses and management of conflict and all that sort of stuff, but comes from an unapologetically humanistic perspective about what it takes to get businesses continuing to fire on all cylinders after they’ve gone through merger, acquisition or other kind of investment events. The reality is this. We can talk about integration in business. We can talk about the fact that there are systems to integrate, there are processes to integrate. There might be technology to integrate, there might be offices to integrate and everything else. The reality is people do not integrate, right? You can’t do synergy, whatever that word means, with people either. Fundamentally, we can collaborate, we can cooperate, we can get on, but we are all separate entities, bumping around the world into one another. We’ve all got our rough edges and our unresolved stuff. A lot of the time what happens is in this language of integration, something is getting lost. And the something that is getting lost is the imperfect and gnarly nature of the human being, right? The whole human perspective gets lost. I always say to clients, you can be efficient with everything but people, which is just a way of really saying in the end, you can work at the level of systems and processes and technology and everything else. You can get all that stuff meshing together really well. The human work is harder, it takes longer, it’s much more inefficient a lot of the time. It tends to be much more emotional, to Paul’s point, and so on. We can collaborate, we can cooperate, but the idea that we integrate people in the way that we would integrate systems or technology or anything else in business is fundamentally nonsensical. And I think sets us up for failure when we think about these processes. So in our corporate practice, we have a tool called the Change Index. Those of you who know Corporate Punk will have heard of this. We do a lot of work around mergers and acquisitions, that sort of stuff. We have this platform called the Change Index and what the Change Index does, and it’s been built on about 40 years of organisational psychology and a whole load of our own research work that we’ve done with clients, is it fundamentally isolates a set of attributes within, effectively, the culture of an organisation that predicts how ready and able that organisation is to step into change. It helps us to think through, through the lens of data and through the lens of statistically robust factual information about how people experience work, what an organisation does well in terms of its ability to step into and move through change and what an organisation might struggle with. Critically, in things like mergers and acquisitions and other forms of transaction, we can actually run the Change Index on both parties. We can run it on company one and company two, for example, or department one, department two. We can start to understand salient differences and start to see what will happen when those people are invited to step into change and actually if we start trying to get them to work together, right? It’s very, very powerful. We’ve done a lot of this kind of stuff in M&A, and it tends to both predict and help solve those kind of human problems that result from these kinds of investment events very, very well. Now, here’s an example. So we got involved in… it’s a financial services business, asset management firm. Been highly acquisitive and it had gone through a big and complex integration process, that word integration again, what had happened was they’d spent a huge amount of time, money and effort bringing together different locations, different systems, they’d got all their finance stuff working and all compliant, they’d reoriented their structure in lots of different ways, and they were still saying it’s just not cohering. We are not getting the commercial results we were hoping for as a direct result of these transactions. And we put the Change Index in. We got all the data back from the people and what we were able to prove, and this slide effectively says, without all the commentary around it, is oil and water at the level of the culture. This just Paul’s very good point about cultural fit. The oil and the water were just not going to be mixing. So in terms of change readiness and in terms of the kind of cultural attributes of these organisations they, well: oil and water, chalk and cheese, pick your slightly cliched metaphor. They were very, very different organisations and all of the work that had been done on integration, none of it had paid attention to what was actually going on at the human level and how these people needed to be encouraged to collaborate, cooperate, all of that sort of stuff. And of course, because how organisations function is a consequence of how people in organisations work together, that’s why they were not seeing the business results that they were looking for. So we were able to get in there and help them do some work. I want to just pick out three common things that in investment events of any sort don’t often get looked at, need to get looked at, and if they don’t get looked at, tend to create those kind of exit wounds that we were talking about at the outset of this webinar. The first of them is self identity. Self-identity doesn’t get talked about anywhere near enough in these sorts of contexts. It’s a concept that says: we all move through the world, we have a sense of who we are. Without getting too Freudian on you, like egoically, I have a sense of who I am, you’ll have a sense of who you are, but we also have a sense of ourselves as a collective. So for example, those of us who go to work every day in an office with the same group of people under a specific brand, people build that into their own identity. And they have a sense of collective identity and a sense of belonging around that kind of stuff. It matters to them, right? It is part of what they spend their lives building, or all of us spend our lives building, is our own sense of identity, individually and collectively, right? And we become quite emotionally attached to it. Unconsciously, but nevertheless, still there. Now, investment events can challenge or even threaten that sense of self identity. Not uncommonly, and again, Paul was alluding to this in his points before about good quality planning. Right. Not uncommonly, you’ll get into the process of an investment, you’ll come out the back end of it, there’ll be changes in vision, there’ll be changes in purpose. Brand can change, sometimes. It’s interesting in the context of Knight that a very probably wise decision was kept to actually maintain that brand. Location can change, team composition can change. All of that can have a huge impact on self-identity. One of my favourite examples of this. We were working with a very large national broadcaster a few years ago and they had an R&D team that had been out in some very nice countryside building somewhere and had been brought into some concrete and glass offices, in one of the cities, and weren’t integrating very well. People weren’t working well with others, there was not collaboration, there was not cooperation, all that sort of stuff. Brilliantly, what had happened was the country house in which they’d been housed, it had two stone guard dogs outside the front door. And they brought these stone guard dogs with them and they stuck them into the glass and steel and concrete new build environment outside where they were all working. So it was almost like a physical example of: this is our identity, we have our own thing, you are not welcome here. Right? Guard dogs. You are not welcome here. It’s all of that symbolism is there in all of it. And again, what had not been paid attention to in all the work that had been done around systems, processes, tech, all of that good stuff, no one had thought about how are these people going to feel when we take them out of this environment and put them into this environment, right? So handled incorrectly or even ignored, actually what you will see is you’ll see foot-dragging, which is really just a way for passive resistance. You may have heard it referred to as quiet quitting as well. That’s the extreme example of it, or actually outright rejection. People just don’t want this, effectively. So self identity really matters to us. If it gets threatened or challenged, it can be a real problem in integration, it can really slow things down. Secondly, values, then. This is something else that we measure. It is always really interesting when you have conversations with organisations about their values. A lot of organisations are very good at writing values-related cheques that reality just can’t cash. A lot of the time what organisations claim are their values aren’t actually their values. I’m very fond of saying to CEOs: I won’t ask you what your values are. I’ll go and have a look at your P&L, have a look at your exit interviews, how you treat your suppliers, and that will tell me what your values are because it will tell me, ultimately, what you spend time, effort, money, trying to achieve. Right? Every organisation has a set of values. Whether we choose to claim others or not, they have a set of values, and those values exert an absolutely huge sway on behaviour. We tend to recruit to values. People tend to survive and thrive in organisations because they share values with the collective, and so on. And actually values can do a wonderful job for us. In the context of, again, Paul was referring to this earlier on, about making sure that that fit between buyer and seller is there. Good quality values and shared values can actually be the mortar that binds people and businesses together at times of change. That process of helping people collaborate and cooperate is made so much easier, a lot of the time, when everybody’s got the same values in common. So if you’re talking about, for example, we care about customer centricity in our business or we care about doing the right thing by our suppliers in our business, or we care about integrity in our business, for example, or creativity in our business. If everybody’s got that in common, can often smooth the way to getting people working better together. But if values alignment isn’t present or, back to where we started on this slide, you’ve got a situation where organisations are kind of in denial about what their values are, and therefore are playing a game of hit and hope to a point, you can expect integration to be bumpy. It can be very difficult to get people working together in the right ways. Very, very hard to compensate where there’s real, genuine values misalignment. The third element, I was going to talk about conflict, Paul mentioned it earlier on, but I think I talk enough about conflict in these sorts of environments. So I decided to talk about something else this morning, which is this idea of sensitivity. Something else that we measure. So we measure sensitivity and change, which is really a way of saying: to what extent are we connected to one another as human beings and also connected sometimes to the outside world and what’s going on there. The only question anybody’s ever asking… so again, when there’s big announcements to organisations, what leaders like to do is the 72 trombones thing and come out and talk about some grand self-actualising vision, which possibly, actually, has been extremely well written and could be very credible and very exciting to people, but actually doesn’t connect because actually what’s gone on is there’s been some really big bit of news, you know; business has been sold or we’ve just got a new investor or merging X and Y or whatever it is. And before we get to all of that stuff, vision, purpose, and all the rest of it, the question that needs answering is, well, what does it mean for me, and actually survival threat. Paul said this earlier on, people will worry about their jobs. Well, when people are worried about their jobs, that’s kind of do not pass go do not collect £200, nothing else is gonna get done, right? Everything gets stopped. All this collaboration, cooperation stuff, all the systemic and process and technology related integration stuff, all of it will slow down or stop because people are so worried about their roles and that’s where the emotional energy starts to go. We see it all the time. The other way that survival threat shows up, by the way, is it’s not just about job security. Again, it’s also about self-identity, about ego, about status, those sorts of things. If I feel threatened, like I’ve spent my time and my energy trying to get ahead in this organisation, this process starts feeling threatening to that, so my egoic survival is threatened. That also can stop everything in its tracks as well. So got to really grasp that nettle in this kind of work. First question we have to answer is, what does it mean for me? So as soon as big event like this gets announced, we’ve got to go straight there and deal with that, first and foremost. Then you have to understand something else. Different people in different parts of organisations are gonna be impacted in different ways. I was with a client a few weeks ago. They have a number of slogans on their walls. And one of them was: ‘we’re all in the same boat’. And I said to the leadership team, we could just do a morning on that. Literally let’s pull that apart and have a conversation about that, because it’s just plainly not true, in any way, shape or form. All human beings, we all effectively inhabit separate realities. We all have different genetics, different neurology, different experience, different way of looking at the world, different value systems. All the data that we received in our lives is different in each and every human being’s case. So the way that we relate to one another and the way that we relate to circumstances is different as well. And then you bring onto that the fact that in a kind of integration process or a merger, acquisition or other form of investment event, actually there are just genuine, practical financial impacts in some cases, then actually you’re going to be ending up with lots of different levels of experience and different types of experience going on there as well. Leaders stand up and say to people, we’re all in the same boat here, it’s a convenient fiction, nothing else, mate. You might be a multimillionaire now and your people aren’t. So it’s about understanding how impact might play out in different ways and doing the quality of thinking to work out how to address that. Understanding also that resistance isn’t always resistance, which sounds a strange thing to say maybe, but ultimately what presents as resistance, what feels like a lack of willingness to get on board with something, might not be that at all. It might be someone trying to understand it. It might be somebody trying to get an answer to that question: what does it mean for me? And if those standards can be met, if that work can be done, then great. And as we’ll talk about later on, the secret to all of this is slowing down to speed up. So ultimately the answer to it all, to take it right back to first principles. If you want to talk about how do you mitigate the risk of exit wounds and how do you make that post-deal environment into one that is as successful as you’re hoping to be, and how do you set the organisation up for success, it really is as simple as complicated as this: you work with people. One of my favourite phrases is: I work with people. So simple. And actually, if you think about that word ‘with’, and you think about what that actually means, and the complexity that we all bring with us as human beings, and the way that we all get in our own and each other’s way, it can be a complicated thing to do. It can be a complex thing to do as well, but ultimately, that’s the secret. Understand human beings are at the heart of all this. If you put them at the heart of it, again, you’ll see things move in some quite remarkable ways. One of the things I like to talk to leaders about is, it’s gonna feel like nothing’s changing, but then it’s going to feel like everything’s changing. What often happens is because you can be efficient with everything but people, we’re talking about integration processes and all that kind of stuff here, what often happens is that you start having all these conversations, you start doing the hard yards of talking to people about what it means for them, understanding what’s going on for them, being sensitive to what their needs are, doing the deeper work around culture and everything else. And it can really feel like this is just frustratingly slow, particularly when you might have new investors who are breathing down your neck on delivering results and all that sort of stuff as well. But actually what you’ll see over time is there’s a kind of coalescing that then happens, there’s an alignment that then happens. And if you get all that stuff done and done well and done in the right ways, then actually you’ve suddenly got a whole group of people who are 100% behind what you’re trying to do. And the kind of multiplier effect of that is absolutely vast. So it’s classic slow down to speed up sort of territory. Three things in all of this then that we talked about. Hopefully this summarises some of Paul’s helpful commentary from earlier on as well. Firstly, if you’re going through this kind of process, both before, during, and after, don’t ignore the human factors. So instead actually expect human factors to exert a really big sway on performance after an event. All business problems are ultimately human problems. And if human beings can relate to one another well and they can work together well, things generally work out okay. Human factors: change is unsettling for us, we don’t like it. We do like it in some instances, actually. Can talk more about that in another context perhaps. But what we certainly don’t like is lots of ambiguity, not being clear on what it means for us, all that kind of stuff. And that can have a real drag on business performance. Ultimately when the news breaks the job for leaders a lot of the time is to go into listening mode. People in organisations need time to process. They need time to think about what’s just happened. A lot of the time there’s this weird informational asymmetry, right? Where suddenly you have been working on due diligence for a long time. Others in the organisation might have been blissfully unaware that all this was going on. They’re going to take time to catch up; allow for that to happen. Allow for them to ask questions. Ultimately, people need to work it through for themselves. Be patient… not necessarily a leadership trait that comes to all of us, including me, by the way, terribly easily, but is an important one. And don’t seek to engage people in a process of integration. Not because the word is wrong. Just because actually what we need to think about is dealing with human beings as the kind of imperfect, gnarly creatures we are where we are separate in lots of senses, but actually we can be pretty good at collaboration and cooperation. And all those sorts of things. So less about integration, which kind of implies a smoothing out, more about how do we get people to work together, how do we get people to get on, how do we get people out of their own and everybody else’s ways as we seek to continue to do with this business what we were hoping to do with it all the way along.

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